March 9, 2022
Going Public: Benchmarking Data on Initial Equity Programs
Transitioning from a private to public company is a huge leap – and it takes a lot of careful thought and dialogue between the company management, its board of directors and its advisors to make sure the company is set up for success. One particular area of pre-IPO focus relates to equity compensation strategies and balancing peer and industry data with the company’s specific compensation philosophy.
To help companies benchmark and assess what works for them, Pay Governance reviewed 368 IPOs from January 1 – December 31, 2021 to analyze equity program practices at IPO. Here’s an excerpt of some key findings:
– Dilution at IPO: Founders and investors use dilution to understand how equity awards to employees could dilute the value of their ownership. Our research shows the median dilution from outstanding equity among IPO companies equaled 5.4%.
– New Share Requests: The median share request for newly funded equity plans equaled 8.2% of fully diluted shares outstanding.
– Evergreen Provisions: Among companies that went public in 2021, 73.4% included an evergreen provision in their long-term incentive plan document. They are especially common among Tech, Bio-Tech/Pharma, and Retail companies with approximately 85.0% prevalence (on average)… Over half (74%) of evergreen provisions were established for 10 years, the maximum allowed period under the stock exchange listing requirements.
– Overhang: … [M]edian overhang at IPO equaled 14.4% across all industries. Tech companies had the highest median overhang at 17.2%, while Financial Services had the lowest at 8.8%.
– Emily Sacks-Wilner